By Andrew K. Reese
Devastating terrorist attacks. Cataclysmic tsunamis. Catastrophic hurricanes. If these disastrous events in recent years have taught Dana Mathes anything, it's that that in this day and age, you really just don't know what manmade or natural calamity might threaten to wreak havoc upon your supply chain next. "It's very hard to understand or quantify what the threats are these days," says Mathes, who is global supply chain director of logistics operations at Dow Chemical, the $49 billion producer of plastics, chemical and agricultural products.
But as hard as it may be, thinking about the unthinkable has become an integral part of the job for Mathes, as it has for supply chain executives at many other enterprises. Because, for better or worse, in this age of lean, extended and outsourced operations, "disaster-proofing" your supply chain isn't an option, it's an obligation.
Risk Management Rising
In the aftermath of recent disasters, supply chain risk management (SCRM) has been gaining increased executive-level attention in the past few years. For example, in a recent report by AMR Research, "Managing Risk in the Supply Chain — A Quantitative Study," authors Mark Hillman and Heather Keltz note that more than half (54 percent) of 89 executives surveyed for the report said that their companies planned to increase spending on SCRM in the following 12 months. Nearly as many (46 percent) said their companies planned to implement or evaluate SCRM technology within the next two years, and one-third said they already have dedicated budget line items for SCRM.
The reason for this upsurge in interest appears clear: Executives believe that the threats to their supply chains are on the rise. In fact, in a September 2006 survey of 3,172 management leaders by consulting firm McKinsey, almost two-thirds of the respondents reported that the risks to their supply chains had increased over the previous five years. These anxieties may stem from the string of major disasters that have affected global supply chains in the new millennium, but at the same time macro-economic trends also are increasing supply chains' risk profiles. AMR's Hillman and Keltz point out that the greater adoption of global sourcing and outsourced manufacturing strategies has left supply chains more exposed to potential disruptions than in the past. "At stake are billions of dollars of stock market capitalization, market share losses from failed product launches or even the possibility of going out of business because of an inadequate understanding of the magnitude of supply chain risks," the analysts write. No wonder executives are nervous.
However, despite the heightened focus on SCRM, executives still give poor ratings to their companies' ability to manage risks. McKinsey's survey revealed that more than half (53 percent) of the respondents rated their companies as only "somewhat capable" of mitigating key supply chain risks, while another quarter (27 percent) offered a grade of "slightly capable." One reason for this insecurity about companies' risk management capabilities may be that for a long time many enterprises have been willing to "pass the buck" when it comes to securing their supply chains. J. Michael Barrett, a terrorism and homeland security expert who is coauthor of the recent book Securing Global Transportation Networks: A Total Security Management Approach, says that too many companies have been "outsourcing" risk by not assuming responsibility for securing their own supply chains against disasters. "Everybody agrees that security is important, but they want somebody else to deal with it," Barrett says. "Everyone ends up pointing at the next person in the supply chain, and as a result, the buck doesn't stop anywhere and we wind up with an incredibly insecure global transportation system."
Tools for Disaster-proofing